Tradeoffs in Competitive
Positioning Strategy
Dr. Theodore H. K. Clark
Associate Professor and Academic Director of
MSc in Information Systems Management Degree Program
Department of Information & Systems Management
Hong Kong University of Science & Technology
Formerly Visiting Associate Professor of Operations & Information Management
(Information Economics and Strategy Group) 1998 - 2001
The Wharton School of the University of Pennsylvania
Strategy Involves Tradeoffs
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You can not do everything well
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Limited resources (money, materials, factory)
Limited time (people, hours in day, attention)
Competitive factors (focused competitor skills)
Essence of Strategy involves Making Choices
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What do you need to focus on to do better?
Where do you not need to spend as much effort?
How can you most effectively use limited
resources and time to achieve your goals?
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Competitive Advantage Choice?
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Comparable Advantage - Something you are
better at than almost everyone else
Competitive Advantage - A comparable
advantage that MATTERS in your market
How can or should you invest your time and
resources most effectively to develop some
advantage in an area that MATTERS to your
customers in your market?
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Sustaining Competitive
Advantage Drives Choices
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Achieving COMPETITIVE ADVANTAGE easier
than SUSTAINING the Advantage over time
Key Challenge is Becoming Hard to Copy
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Economies of scale and network externalities
Access to key skills, resources, or suppliers
Customer switching costs and brand preference
Government policy (patents, antitrust, etc.)
Fast (not First) Mover Advantage also Matters
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Three generic strategies
Strategic Advantage
Uniqueness
Industry
Low cost position
Differentiation
Overall Cost
Leadership
Strategic
Target
Segment
Only
Focus
”Determining the cost/value tradeoff you wish to offer consumers is the
most critical decision” - Porter
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Porter’s Generic Strategy # 1:
Leadership Based on Lower Cost
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Become low-cost producer in the industry
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Lowest total cost, not just low variable cost
Often driven by economies of scale
Must have parity quality or have lowest cost
AFTER adjusting for quality differences
Leveraging scale is common source of
advantage in many industries
Information goods may have difficulties with
this strategy as costs of duplication are low
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Porter’s Generic Strategy # 2:
Differentiation and Segmentation
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Differentiation means to make your product
unique and (hopefully) more valuable
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Becoming hard to copy is critically important
Avoid commodity competition based on price
Differentiation must be worth more to
customers than it costs to create
Horizontal differentiation (segmentation)
versus vertical differentiation (quality)
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Less competition with horizontal differentiation
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Porter’s Generic Strategy # 3:
Focus or Niche Target Market
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Can be based on cost, differentiation or both
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By targeting a narrow market segment, you may
be able to provide targeted products and services
to that segment that are both low-cost and
differentiated relative to less targeted firms
Strategy is by design differentiated based on
segment, as target market segment needs
must be unique for focus strategy to work
May be only option open for new entrants
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Choices in Capstone Simulation
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What market segments will you compete in,
and with what product design attributes?
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Hard to be good at everything
Some skills important in High End don’t matter at
all in Low End, and vice versa
What areas of business improvement are
most important to “win” in your markets?
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Automation? TQM / Quality? R&D? Training?
What level of capacity and finances are needed?
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Getting the Basics Right
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Some skills are essential to get right
regardless of your business strategy
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Forecasting – get this wrong, and run out of
products or out of money (due to high inventory)
Marketing – you may need to spend more or less
on this function, depending on strategy, but you
will always need to spend SOME and spending it
efficiently and wisely is important to success
Production Planning – Too much or too little
capacity for production will hurt your business
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